SpaceShot, Inc. has promised to offer trips around and to the Moon if there is sufficient demand. (credit: David Robinson, courtesy of SpaceShot, Inc.)

Building a space prize slate

by Sam DinkinMonday, June 12, 2006

Buzz Aldrin found me at ISDC 2005 in Washington, DC and said, “I liked your lottery piece, let’s talk after your speech.” When we talked, he said that he thought that it would be more effective to have intermediate prizes. I have been told the same thing by Clark Lindsey, editor of HobbySpace; and one of my top players, who has played over 1,000 times.

The case for a big slate of lots of prizes comes from the days of the big sweepstakes. When Publisher’s Clearinghouse put together a multimillion-dollar operation to give away lots of prizes, they needed prizes to appeal to everyone. Some people cared more about a boat, others a car, still others a big screen TV. By putting dozens of prizes together in a slate, they were able to get more people to open the envelopes that the sweepstakes entries came in and generate more magazine sales. This was important to build critical mass so that the probability of a sale was high enough to support the large operation necessary to blanket the country with direct mail solicitations.

Internet skill games change the business of prizes in several ways. First of all, delivery costs are lower for game pieces. It doesn’t cost $1 for postage, stickers, envelopes, and inserts any more. Marginal cost for running a skill game on the Internet are quite low. Most of the costs are relatively fixed like servers, bandwidth, legal, and software development.

The case for a big slate of lots of prizes comes from the days of the big sweepstakes. Internet skill games change the business of prizes in several ways.

Second, with skill games that are pay-to-play, there needn’t be different products to co-sell with each giveaway. In a sweepstakes, Publisher’s Clearinghouse sells fewer magazines (e.g. none) if they send a second sweepstakes entry to the same person two weeks later who has already bought lots of magazine subscriptions last time. Saturation is reached once a year for annual subscriptions. In a pay-to-play Internet skill game, people who like the prize can play over and over, perhaps over a thousand times in two months. That’s why I am confident (and I am putting my money where my mouth is here) that SpaceShot will award more space flights than companies like Plantronics, 7-Up, or Volvo.

With a firm dedicated to giving away prizes, it can build a brand out of the prize, such as freeipod.com, which probably has more brand equity than freepay.com, where the site is currently pointing. I guess too many of its customers have iPods—that would be a good reason for SpaceShot to stop its spaceflight game.

Third, with pay-per-click web advertising and pay-per-sale affiliate deals, we can “sliver cast” to the narrow demographic of people who want the prize we are offering (suborbital spaceflight in the first six months of revenue customer flight) so we don’t need to blanket the entire country with our ads. This allows us to keep our customer acquisition costs reasonable without a product that appeals as broadly as Publisher’s Clearinghouse’s prize slate did.

Fourth, venture capital and bootstrap business models allow a much leaner capital operation so that the money that has to be raised to start an Internet skill game competition is now substantially lower than the amount needed to start Publisher’s Clearinghouse. This is a trend that will continue if Army of Davids and Rainbows End are to be heeded.

The way this works for SpaceShot is that we can focus each of our games on a single prize.

Fifth, the utility for each person may be high for one of the prizes on the slate of prizes, but probably low for many of them. By having a much lower startup cost than Publisher’s Clearinghouse, Internet skill games can specialize. By having several different competitions, each with their own prize, an Internet skill game can sort players into skill games where they are competing for the prize they want the most. This decreases the value to the player far less than decreasing the cost of the prizes. As a consequence, the number of players competing for a particular prize becomes much lower.

The way this works for SpaceShot is that we can focus each of our games on a single prize. We keep our prize costs low and deliver a greater percentage of the revenues to the players than Publisher’s Clearinghouse pays for its sweepstakes or lottery players pay to play state lotteries.

So my pundits and players may continue to be frustrated for a while until the new business model pays off well enough to offer dedicated games for the intermediate prizes they were looking forward to players winning.